Department of Justice Signals More Aggressive Healthcare Competition Enforcement With Withdrawal of Three Policy Statements
By Sarah Bayer and James J. Kovacs
Last week the Antitrust Division of the U.S. Department of Justice signaled a more aggressive approach in promoting healthcare competition with its announcement that it is withdrawing three policy statements concerning competition in healthcare markets.
The rescinded statements, released in 1993, 1996, and 2011, provided an enforcement rubric and offered various “safety zones” for industry actors to collaborate on certain functions without drawing enforcement scrutiny. In withdrawing its policy statements, the DOJ called them “outdated” and “overly permissive on certain subjects,” and announced it will instead transition to a “case-by-case enforcement approach.” All three withdrawn statements were jointly issued with the Federal Trade Commission, which has not yet announced whether it will withdraw or maintain the policies.
Although the policy statements were not legally binding, their withdrawal will have a dramatic impact on clients, both in the healthcare space and in any adjacent industries that have relied on these statements to create networks and share information.
Three examples illustrate the significance of the guidelines and the potential changes caused by their rescission:
Many healthcare providers and non-healthcare entities have relied on the 1993 statements to inform the processes by which they exchange pricing information. Crucially, the withdrawn statement carved out a safety zone for healthcare providers to participate in, and review results of, surveys about service prices and wages, salaries, and benefits of hospital personnel.
Such exchanges of pricing information would otherwise skirt the boundaries of per se unlawful horizontal collusion.
Under the safe harbor, which was further refined by the 1996 statements, the safety zone applied where the following three conditions were met: (1) the survey is managed by a third party, which includes trade associations, (2) the information collected for the survey is more than three months old, and (3) the price or cost data reported are based on data from at least five providers , with no provider’s data representing more than 25%, and aggregated so that the prices charged or compensation paid by particular providers cannot be identified. Without this safe harbor in effect, providers and their associations can no longer be certain that they will not be subject to prosecution for exchanging pricing information. As we have previously reported on this blog, the DOJ has shown growing interest in prosecuting labor market collusion among healthcare providers. The withdrawal of this safe harbor, particularly with respect to employee compensation, will allow the Department to redouble its efforts in this area and should prompt caution on the part of clients who rely on such information in their businesses.
A second change pertains to physician network joint ventures. The 1996 statements provide that a network “involving substantial clinical integration … is unlikely to raise significant competitive concerns under the rule of reason.” The statement made clear that, while agreements among independent care providers as to the fees they will charge health plans for their services typically are per se unlawful, they will be treated under the rule of reason and viewed favorably where the providers are clinically integrated, such as through investment in shared mechanisms to measure and improve performance and patient care.
While there is scant case law on the subject, the FTC has cited this guidance on a number of occasions to determine whether a joint venture is anticompetitive. In various advisory opinions, the FTC has focused on clinical factors such as more efficient referrals, improved physician performance, and member providers’ ability to contract independently, as features that mitigate competitive concerns for joint ventures. In the absence of the withdrawn statement, FTC precedent may still provide helpful guidance to competitors seeking to form a clinically integrated joint venture.
Finally, the rescission of the 2011 statement creates uncertainty for accountable care organizations (ACOs). ACOs, much like clinically integrated networks, are groups of providers that coordinate care for a designated group of patients, primarily under Medicare but sometimes for private insurance enrollees as well. ACOs are designed to provide superior care as well as cost savings. Given that ACOs are often comprised of competing providers, the 2011 statement empowered ACOs to operate within a “safety zone” that was “highly unlikely to raise significant competitive concerns.”
Generally, ACOs qualified for the safety zone when participating providers offering the same service accounted for a combined market share of 30 percent or less in each Primary Service Areas covered by two or more providers. The withdrawal of the 2011 statement and its safety zone for ACOs thus throws into doubt the permissible market shares that ACOs may achieve without drawing DOJ scrutiny. Of course, to the extent that ACOs are also clinically integrated joint ventures, they may still benefit from the FTC’s opinion letters on joint ventures, cited above.
The DOJ’s withdrawal of these three policy statements creates significant uncertainty for a wide swath of healthcare organizations. Practices and conduct on which many firms previously relied, and which once enjoyed blanket protection from prosecution, will now be assessed on an individual basis.
Just as the DOJ will now review each potential case on its facts, healthcare providers must pay special attention to the particular facts of their own practices, weighing competitive concerns such as size and bargaining power against benefits to patient care and overall efficiency.
By Sarah Bayer and James J. Kovacs
Edited by Gary J. Malone
 Department of Justice and FTC Antitrust Enforcement Policy Statements in the Health Care Area (Sept. 15, 1993).
 Statements of Antitrust Enforcement Policy in Health Care (Aug. 1, 1996), § 8.C.
 Id., § 8.C.1.
 FTC Advisory Opinion re: Greater Rochester Independent Practice Association, Inc. (September 17, 2007), § III.B.1 (discussing potential for referrals across a broad cross-section of medical specialties).
 FTC Advisory Opinion re: MedSouth, Inc. (February 19, 2002) (standards and accountability mechanisms for physician performance cited as source of likely efficiencies due to integration).
 FTC Advisory Opinion re: TriState Health Partners, Inc. (April 13, 2009), § IV.D.1.a. (“non-exclusivity in practice is of critical importance to our conclusion that TriState’s proposed program is unlikely to … result in anticompetitive market effects.”).
 Statement of Antitrust Enforcement Policy Regarding Accountable Care Organizations Participating in the Medicare Shared Savings Program (Oct. 20, 2011), § IV.A.